Documents considered by the Committee on 28 February 2018 Contents

12Quality of trade statistics

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the International Trade and Public Administration and Constitutional Affairs Committees

Document details

(a) Report from the Commission on statistics concerning balance of payments, international trade in services and foreign direct investment; (b) Commission Staff Working Document: Quality Report on Balance of Payments, International Trade in Services Statistics and Foreign Direct Investment Statistics 2016

Legal base

(a); (b):—; (see Article 4(3) of Regulation 184/2005)

Department

Office for National Statistics

Document Numbers

(a) (39479), 5754/18, COM(2018) 47; (b) (39456), 5537/18, SWD(2018) 39

Summary and Committee’s conclusions

12.1Eurostat, the statistical office of the European Commission, has published its latest assessment of the quality of EU Member States’ statistics on their balance of payments and international trade in services.226 The reports emphasise the persistence of bilateral asymmetries in the statistics as reported by the EU’s national international trade authorities, meaning that there is a mismatch in the data on trade flows—in both directions—between the EU countries, including the UK. In particular, Eurostat found that EU countries are recording larger volumes of exports than imports between themselves, when in reality the two figures must necessarily be the same.227

12.2With respect to the UK’s balance of payments specifically, these findings chime with the Office for National Statistics (ONS) own conclusions on trade asymmetries.228 These show that the UK often records a larger volume of exports of both goods and services to a number of major trading partners than the statistical authorities of those countries record for UK imports, and vice versa. For example, in 2014 the UK estimated it had trade surpluses in services with Ireland, Luxembourg and the Netherlands, while those countries also recorded surpluses on the same metric for their trade with the UK.229

12.3In her Explanatory Memorandum on the documents, the Parliamentary Secretary to the Cabinet Office (Chloe Smith) welcomed Eurostat’s findings.230 She added the Government “is actively working” with the OECD and other countries’ National Statistical Organisations on “understanding and addressing the bilateral asymmetries” in trade data, to improve their overall accuracy.

12.4These Eurostat documents on the balance of payments statistics are routine publications which, in themselves, have no policy implications for the UK. No legislative changes to the regulatory framework for the production of these statistics are currently foreseen, and any future amendments would take effect well after Brexit. However, we believe the reports may be of interest to the House because of the discrepancies they highlight in the UK’s recording of its trade in goods and services with other EU countries compared to trade with the UK as recorded by HMRC’s counterparts overseas.

12.5The bilateral asymmetry in the ONS’ trade statistics is especially important in the context of the UK’s withdrawal from the EU, as Brexit requires the Government to take full responsibility for the UK’s international trade policy for the first time since 1973. In order for the efforts of the Government’s trade negotiators to be focussed appropriately during these talks, they must have accurate information on current trade deficits and surpluses by sector, and use this information to inform the UK’s negotiating objectives and strategy appropriately.

12.6In the immediate post-Brexit period, the UK’s trade relationship with the EU is expected to remain broadly unchanged, as it will effectively stay in the Single Market and the Customs Union during the proposed transition period.231 The Government is also seeking the European Commission’s assistance in persuading non-EU countries, with whom the UK currently has trade agreements by virtue of its EU membership, to maintain the effects of those agreements for the duration of the transition.232

12.7Nevertheless, preparations for the UK’s independent trade negotiations—with both the EU and other countries—are underway within the Department for Exiting the EU and the Department for International Trade, to negotiate the legal underpinning for new economic partnerships with both the EU and non-EU countries. The aim is for these to take effect as soon as possible after the end of the transitional period. The availability of accurate statistics on the trade balance of different sectors of the UK economy will be indispensable to allow the Government to formulate trade objectives and a strategy that will maximise the economic benefits of any resulting trade agreements.

12.8The Government itself has already recognised the need to address the causes of the asymmetries in the UK’s balance of trade records. Eurostat’s recent reports on trade statistics complements the Office for National Statistics’ own on-going efforts to identify and rectify the causes for bilateral asymmetries in international trade data (see “Background” below). We therefore consider these documents politically important, and accordingly draw them to the attention of the House and of the International Trade Committee. We also consider they may be of interest to the Public Administration and Constitutional Affairs Committee, given its scrutiny of the UK Statistics Authority.

Full details of the documents

(a) Report from the Commission on the implementation of Regulation (EC) No 184/2005 of the European Parliament and of the Council of 12 January 2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment: (39479), 5754/18, COM(2018) 47; (b) Commission Staff Working Document: Quality Report on Balance of Payments, International Trade in Services Statistics and Foreign Direct Investment Statistics 2016: (39456), 5537/18, SWD(2018) 39.

Background

12.9The Balance of Payments (BoP) Regulation233 requires EU countries to submit quarterly and annual statistics to Eurostat on their balance of payments, international trade in services and foreign direct investment. It also established a common framework and statistical quality standards for the systematic production statistics on these subjects.

Quality assessment of statistics provided

12.10In January 2018 the European Commission published its latest annual report on the extent to which the statistics provided by EU Member States under the Regulation comply with the quality principles that guide the European Statistical System (ESS).234 The Commission Report collates the data submitted by each national statistical office in the European Economic Area.235

12.11As it did last year,236 the Commission notes that the quality assessment “meets expectations and that the overall quality of data transmitted is good as well as generally positive”. The report makes a number of recommendations for the UK’s Office for National Statistics (ONS).237 The most important of these relates to the need for reducing bilateral asymmetries, a mismatch in the data on trade flows, in both directions, between the UK and other EU countries.238 Such asymmetries can be caused by a range of conceptual, definitional and measurement variations between the statistical approaches taken by different countries.

12.12The Commission’s Quality Report found that intra-EU asymmetries (i.e. discrepancies in the recording of flows of goods and services between EU countries) continue to show a positive imbalance for trade in goods and services. This means that collectively EU countries are recording larger volumes of exports (“credits”) than imports (“debits”) between themselves, when in reality the two must be symmetrical.239 Eurostat has been running workshops since 2016, providing a forum for EU countries to “bilaterally discuss the reasons behind the reported values in an informal way and to agree on specific future actions to minimise existing asymmetries”.

12.13With respect to the UK’s balance of payments specifically, these findings chime with the ONS own conclusions on trade asymmetries.240 These show that the UK often records a larger volume of exports of both goods and services to a number of major trading partners than the statistical authorities of those countries record for UK imports, and vice versa. For example, the UK and the US both reported a trade surplus in services with each other in 2014.241 The discrepancies for the estimates of trade flows between the UK and its major EU trading partners are shown in the Annex to this Report.

12.14It should be noted that the existence of bilateral asymmetry in trade statistics in itself does not mean that the UK’s estimates of its imports and exports are incorrect. The “true” value of trade flows between two countries is unknown, and, as the ONS has said, could lie between their respective estimates, or even outside that range altogether. However, the discrepancies do matter, because it necessarily follows that two countries reporting different trade flows with each other cannot both be right. As the UK leaves the EU, and the Government takes over responsibility for international trade policy from the European Commission, it will need the most accurate possible statistics on its balance of trade.

12.15In recognition of this, the ONS’ “Trade Development Plan” has as one of its objectives the need to improve data on international transactions, and in particular “the causes of bi-lateral trade asymmetries between particular countries”.242 This point has also been made in evidence submitted by the financial services industry to the Public Bill Committee for the Trade Bill.243

12.16The Parliamentary Secretary to the Cabinet Office (Chloe Smith) submitted an Explanatory Memorandum on the documents in February 2018.244 In it, she welcomed the findings of both reports and the continued improvements made by Member States in the production of statistics on trade. She added the Government “is actively working” on improvements in the areas identified by the Commission. This includes engagement with the OECD as well as other National Statistical Organisations on understanding and addressing the bilateral asymmetries in trade data, to improve their overall accuracy.

Report on implementation of the BoP Regulation

12.17The annual quality report on trade statistics was accompanied by a separate Commission report on the overall implementation of the Balance of Payments Regulation (the first such report since 2010).245 The document examines the principal aspects of the Member States’ implementation of the Regulation, and the measures which the Commission itself has taken to ensure that EU-level statistics on balance of payments, international trade in services and foreign direct investment meet high quality standards.

12.18It concludes that the BoP Regulation has helped to further harmonise EU-wide statistics, and has also helped ensure that data are available at the appropriate time and that users have access to more detailed data. The Commission does not consider any amendments to the legislation necessary at this stage. However, in 2018 Eurostat will carry out a pilot project on production of statistics on annual foreign direct investment (FDI) based on the ultimate ownership concept,246 and on FDI statistics that distinguish between ‘greenfield’ foreign direct investment from takeovers.247

12.19Depending on the outcome of these pilots, the Commission may propose to include new requirements in the Regulation in 2019. Any amendments would presumably not apply as a matter of law in the UK, as their date of application would fall well beyond the projected end of the post-Brexit transition period in December 2020.

12.20In her Explanatory Memorandum, the Minister notes that the Commission report does not contain any “explicit regulatory proposals” for revision of the BoP Regulation at this stage, and as such there are no policy implications arising from the document.

Previous Committee Reports

None.

Annex: Estimates of UK balance of trade with selected EU countries

12.21Figures provided by the Office for National Statistics248 show the overall discrepancies in the UK’s balance of trade with its major trading partners in the European Economic Area, as estimated by HMRC and its counterparts (the “mirror estimate”) in the countries concerned. These indicate that the other countries almost always record higher trade surpluses or smaller trade deficits with the UK than HMRC does.

12.22Figures are in billions of US dollars. A negative amount denotes a UK trade deficit.

Country

Goods

Services

UK estimate of trade balance

Mirror estimate of trade balance

UK estimate of trade balance

Mirror estimate of trade balance

Belgium

-$13.20

-$17.30

$1.20

-$0.80

France

-$11.00

-$14.20

-$0.50

-$5.50

Germany

-$48.30

-$54.20

$3.80

$0.60

Ireland

$9.90

$5.10

$7.20

-$11.70

Luxembourg

$2.60

-$2.20

Netherlands

-$16.90

-$15.10

$11.10

-$4.70

Norway

-$21.60

-$27.10

Sweden

$3.40

$1.20


226 The Eurostat documents are available here.

227 See Commission document SWD(2018) 39, p. 30.

228 See ONS, “Asymmetries in trade data—diving deeper into UK bilateral trade data“ (accessed 14 February 2018).

229 See the Annex to this Report for specific examples of balance of payments asymmetries in the UK’s trade with EU countries.

230 Explanatory Memorandum submitted by the Office for National Statistics (9 February 2018).

231 The European Council has proposed a transitional arrangement during which the UK will remain bound by EU law, including new EU legislation, but without political representation in the EU institutions.

232 Department for Exiting the EU, “Technical note: international agreements during the implementation period“ (8 February 2018).

233 Regulation (EC) No 184/2005.

234 The quality principles are relevance; accuracy; timeliness and punctuality; accessibility and clarity; comparability; and coherence.

235 Norway and Iceland apply EU statistics legislation as part of their obligations under the European Economic Area (EEA) Agreement. Liechtenstein, while in the EEA, does not have to apply the BoP Regulation given its small economy.

236 Document 38589, 6912/17. Cleared as “not legally or politically important” on 29 March 2017.

237 The other two recommendations relevant to the UK relate to the need to rectify “fairly large” statistical discrepancies between specific accounts (which are “within current tolerances”), and reducing the use of “confidential” or “non-publishable” markets for statistical data, which can impact on data availability to users.

238 The ONS explains trade asymmetry as follows: “When goods and services are traded (imported and exported) between countries, the transactions are reported twice: once by each country in the bilateral relationship. Simplistically the credits (exports) recorded by one country and the debits (imports) recorded by the bilateral partner from that country should be identical. In reality, this is rarely the case and the discrepancy is known as an “asymmetry”.”

239 See Commission document SWD(2018) 39, p. 30.

240 See ONS, “Asymmetries in trade data—diving deeper into UK bilateral trade data“ (accessed 14 February 2018).

241 For example, ONS figures show that, in 2014, the UK’s data recorded a cumulative trade deficit in goods with 10 countries including the US, Germany, Ireland and France totalling $64.3 billion. However, the data held by these countries on trade with the UK showed a trade deficit of $98.1 billion.

242 ONS, “UK trade development plan: 2017“ (accessed 14 February 2018).

243 For example, financial services body TheCityUK told the Public Bill Committee in January 2018: “The government will need to devise improved systems for collecting and recording information on the UK’s trade in service (…). Given the importance to the UK of trade and investment in services, it is ironic that the international statistical data for services trade is patchy and poor (…). Unless these factors can be established with reasonable certainty, it will be hard to set objectives to be achieved in future trade and investment negotiations.”

244 Explanatory Memorandum submitted by the Office for National Statistics (9 February 2018).

245 The Commission published its last review of the BoP Regulation in June 2010; see COM(2010) 307. It was cleared as “not legally or politically important” by the previous Committee on 13 October 2010.

246 Ultimate ownership of FDI aims to identify the country where the company that ultimate controls an investment is based, rather than the host country of the entity directly responsible for the investment. For example, many multinationals channel their investment through subsidiary entities in Luxembourg, the Netherlands or Switzerland.

247 There are three main types of FDI: cross-border takeovers; greenfield investments; and the extension of existing capacity. Greenfield FDI refers to “the creation of a firm from scratch by one or more non-resident investors”.

248 See ONS, “Asymmetries in trade data—diving deeper into UK bilateral trade data“ (accessed 14 February 2018).




5 March 2018